Strategic Managment

BUAD 4980

STRATEGIC MANAGEMENT

CHAPTER 1: OVERVIEW OF STRATEGIC MANAGEMENT

Introduction:

This chapter discusses the strategic management process and introduces key concepts in strategic management.

1. Strategy:

1.1. Rational approach: Strategy is a plan of action (i.e. an integrated and coordinated set of commitments and actions) designed by top management to achieve objectives and therefore gain competitive advantage.

1.2. Emergent approach: Strategy is a pattern of decisions that emerges from all organizational members’ actions.

2. Strategic competitiveness:

2.1. Strategic competitiveness: the ability of a firm to formulate and implement strategies that will lead to the creation of a competitive advantage

2.2. Competitive advantage: a set of value-creating strategies that are unique and that result in above-average performance

2.3. Performance: the accomplishment of the objectives (standards or targets) that have been set by managers. Performance is a multidimensional concept and is therefore measured by several indicators. One set of indicators is related to financial performance, and another set of indicators measures strategic performance.

- Financial performance: indicators that evaluate a firm’s ability to fulfill its economic responsibilities (paying dividends, wages, debts, etc.). It is short-term oriented

- Strategic performance: Indicators that evaluate a firm’s ability to achieve competitive advantage (efficiency, quality, innovation)

3. Models for achieving above-average performance: two models

3.1. Industrial organization model (I/O): a framework that adopts an external perspective and suggests that forces outside of the organization are the dominant factors that influence a firm’s ability to achieve a competitive advantage

3.2. Resource-based model: a framework that adopts an internal perspective and suggests that resources and capabilities of an organization represent the foundation upon which a firm’s managers develop strategies needed to achieve a competitive advantage

4. Strategic management:

Most textbooks and professors have adopted the rational approach. According to the rational approach, strategic management is a process that includes the following steps:

- Developing a vision & a mission, setting goals & objectives (Chapter 1)

- Analyzing the external environment (Chapter 2)

- Analyzing the internal organization (Chapter 3)

- Formulating strategies (Chapters 4 through 9)

- Implementing strategies (Chapters 10 through 13)

5. Few other definitions:

5.1. Organization: A group of individuals who put their resources together to accomplish a goal. There are for-profit organizations (e.g. company) and not-for-profit organizations (e.g. churches).

5.2. Proactive versus reactive strategies: Strategies can be developed proactively, that is, in anticipation of future changes in the environment, or reactively, that is, in response to changes in the environment.

5.3. Industry versus business: An industry is a sub-set of an economic sector (e.g. in the manufacturing sector, industries include computer industry, automobile industry, pharmaceuticals industry, etc.). A business is the activities a company is performing in a specific industry (e.g. General Electric has several businesses, including banking business, appliances business, aircraft engine business, etc.).

6. Vision and mission

6.1. Vision: What an organization wants to become in the future. It is the direction of a company. A vision is strategic when the focus is on the long-term, that is, what a company wants to be in a distant future. So strategic vision is the long-term direction that a company wants to take.

6.2. Mission: The business of a company. A mission statement is a declaration of a company’s reason for being, that is, its business (products and/or services), the needs it is trying to satisfy (customers), its markets (geographic scope), the technologies it is using, its philosophy (key values, beliefs and ethical standards), its concern for the interests of all the stakeholders (how it assumes corporate responsibilities).

7. Goals and objectives:

Strategic managers need to convert their company’s vision and mission into results to be achieved, in order to evaluate performance.

7.1. Goals: Desired end results that managers want to accomplish. In economics, a typical goal for firms is to maximize profits. But, in strategic management, there are multiple goals as there are several stakeholders

7.2. Objectives: Specific and quantified versions of goals. For example, a firm may have the objective of achieving a 15% ROI)

7.3. Balanced scorecard: Goals and objectives should be set so that strategic managers evaluate various aspects of both financial and strategic performance. The approach that emphasizes the need to develop a good mix of goals and objectives so as to addressing multiple and different dimensions of performance is referred to as the balanced scorecard.

8. Strategic leaders:

Strategic (and tactical) decisions are made at various organizational levels by managers that participate in the strategy process.

8.1 Corporate level: Strategic managers are primarily the chief executive officer (CEO) and the corporate staff

8.2 Divisional level: Division managers make decisions about their businesses and/or their regions

8.3. Functional level: Managers in different functions (marketing, finance, operations, HRM, R&D, etc.) make decisions about their particular departments or functions (a function is a set of like or similar activities)

8.4. Operating level: Finally, plant and/or store managers make decisions

9. The new competitive landscape:

In today’s world, the nature of competition has fundamentally changed. Because of technological advances, political transformation toward democracy, economic liberalization, free trade and foreign direct investment, the new reality of competition is hyper-competition. The new competitive landscape is characterized by global economy and an increasing trend toward globalization

9.1. Global economy: goods, services, people, skills and ideas move freely across borders. Europe (EU) is now the largest single market. New economic powers have emerged. These new powers include among others Brazil, Russia, India and particularly China (the so-called BRIC). The following are a few distinctive features of the global economy:

- Information age: changes in information technologies (PCs, cellphones, smartphones, tablets, massive databases) have made rapid access to information available to firms all over the world

- Knowledge intensity: increasingly, knowledge (i.e. information, intelligence and expertise) has become a critical organizational resource

9.2. Globalization:

- Definition: globalization can be defined as the increasing interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across countries

- Drivers of globalization: A key factor that drives the trend toward more globalization is new transportation and communication technologies that are dramatically advancing. Another driver of globalization is the increasing number of nations that are transitioning from planned economy to market economy (often, these nations also undertake political change from totalitarianism to democracy). The transition to market economy results in more countries privatizing state-owned firms, and opening up their previously closed domestic markets.

- Implications of globalization:

+ The need for strategic flexibility: to remain competitive, firms must respond to the requirements of dynamic and uncertain environments

+ The need for strategic focus: as companies are facing competitors from multiple nations, they need to focus their efforts on a small set of distinctive competencies that, if properly managed, will help to sustain a global competitive advantage